Interest Rates Dip Slightly this week

Interest rates for buying a home on the Palos Verdes Peninsula increased slightly this week.The following are excerpts from the newsletter on interest rates published by HSH Associates :

“As it has for much of the spring, the economy seems to be maintaining an upward path. Coupled with a forgiving Federal Reserve slowing removing policy accommodation, this has resulted in record highs for major stock market indices, while the global investor search for yield and to keep funds out of harm’s way has helped U.S. interest rates to remain low.

We find ourselves in a very interesting position as the recovery seems to finally be coming into its own. With only about $35 billion left to trim, the Federal Reserve will complete its exit from QE in just three more meetings, with an expected late October closure of the program. After that, Fed officials and official forecasts suggest it may be six months before the Fed begins to adapt interest rate policies to the new economic reality.

If present growth trends persist between now and the end of the program we will probably get something shorter than a six-month period in which to prepare, especially if inflation tracks upward during this time. Even if the Fed chooses to do nothing during this window, markets will certainly have made adjustments in preparation, lifting rates, and the Fed will probably be acting reactively at that point rather than proactively.

For now, and likely through the summer, we may see data-driven bumps and dips in rates. Although we managed a slight dip presently, a bump is in order before long.

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Just as bad economic news presages declines in interest rates, good economic news generally presages increases in them. How much increase or decrease occurs usually depends on the context of the information, whether it reveals a change in direction or further confirms a trend, and of course how well markets are positioned relative to the individual item (or collection of items). The biggest changes tend to occur when the market is surprised one way or the other, which is why a “blockbuster” report (or extraordinarily weak one) can drag rates one way or the other. Of course, this is also influenced by the individual or collective outlook of the investor or the market, which must position not only for today, but for months and sometimes years ahead.

At the moment, markets seem to expect that incoming economic data will be fair, or better. Last week, forecasts were for perhaps a June employment report of 200,000; those forecasts were ratcheted upward (and investor positions re-hedged somewhat) after the ADP report showed a spurt in private hiring. By the time the Bureau of Labor Statistics reported on Thursday morning, all that was left for influential underlying rates to move was a little bump of a few basis points, but the cumulative change in positions during the week suggests that mortgage rates will rise perhaps five or six basis points next week.

Should the data continue bear out the market’s stance of expecting somewhat better news as the summer progresses, we might start to expect gradually firming mortgage rates, but the market’s muted reaction to incoming data so far suggests this will be a measured process at best.”

The following are interest rate quotes from American California Financial: